Indian stocks yet again surge to record highs; inflation data, Budget now in focus

Indian stock indices moved higher as the Friday session progressed and in the process touched a fresh high, triggered by the latest moderation in US inflation, better-than-expected TCS results, and lack of negative market fundamentals. Sensex closed over 600 points or 0.8 per cent higher at 80,519 points, whereas Nifty closed 186 points or 0.8 per cent higher at 24,502 points. Sectoral indices were mixed today.

US consumer inflation unexpectedly fell in June, raising hopes for a sooner-than-expected interest rate cut - possibly in September.

Sensex and Nifty have cumulatively accumulated 11-13 per cent returns so far in 2024-25. Strong buys by both foreign and domestic institutional buyers also have been supporting the stock markets.

"Multiple tailwinds led the market to come out of the range-bound trajectory. The strong result from the IT bellwether and a drop in US inflation to a one-year low added optimism to the market. The chances of a rate cut in September are inching higher, which is evident in the fall of the dollar index. We expect stock-specific moves to gain traction due to the ongoing earnings season and upcoming budget; indeed, IT will be in the limelight due to the good start to the earnings and outlook," said Vinod Nair, Head of Research, Geojit Financial Services.

Going ahead, the markets will react to India's June retail inflation, scheduled to be released later today.

In May, India's retail inflation rate softened marginally, continuing its moderation trend, though food prices continued to remain a pain point for the policymakers.

Annual retail inflation in May was at a 12-month low of 4.75 per cent, marginally down from 4.83 per cent in April. The retail inflation or Consumer Price Index, in December last year was 5.7 per cent, and since has been moderating.

The retail inflation in India is in RBI's 2-6 per cent comfort level but is above the ideal 4 per cent scenario. Inflation has been a concern for many countries, including advanced economies, but India has largely managed to steer its inflation trajectory quite well.

"We expect this momentum to continue supported by the expectation of healthy quarterly results, hope of a rate cut, and a pre-budget rally. IT sector is expected to be in focus as other IT majors will come out with results. On Monday, markets will react to India's inflation data which will be released post-market. Key results next week include Jio Financials, HDFC Life, Asian Paints, LTI Mindtree, Infosys, Havells, Wipro, JSW Steel, Paytm, etc," said Siddhartha Khemka, Head - Retail Research, Motilal Oswal Financial Services Ltd.

Going further ahead, market participants will actively monitor the policy decisions of the new government. Nirmala Sitharaman, who has been again allocated the finance ministry portfolio, and her fresh decisions will be widely tracked. She will present the full Budget for 2024-25 on July 23.